In Search of Concepts: The Effects of Speculative Demand on Stock Returns
Owain ap Gwilym, Iftekhar Hasan, Qingwei Wang, Ru Xie
European Financial Management,
Nr. 3,
2016
Abstract
Using a novel proxy of investors' speculative demand constructed from online search interest in investment concepts, we examine how speculative demand affects the returns of Chinese stocks. We find that speculative demand increases following high market returns and predicts subsequent return reversals. Moreover, the speculative demand explains more variation in subsequent returns of A shares (more populated by retail investors) than B shares (less populated by retail investors). Our findings support the recently developed attention theory.
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The Role of Complexity for Bank Risk during the Financial Crisis: Evidence from a Novel Dataset
Thomas Krause, Talina Sondershaus, Lena Tonzer
Abstract
We construct a novel dataset to measure banks’ business and geographical complexity. Using these measures of complexity, we evaluate how they relate to banks’ idiosyncratic and systemic riskiness. The sample covers stock listed banks in the euro area from 2007 to 2014. Our results show that banks have increased their total number of subsidiaries while business and geographical complexity have declined. Bank stability is significantly affected by our complexity measures, whereas the direction of the effect differs across the complexity measures: Banks with a higher degree of geographical complexity and a higher share of foreign subsidiaries seem to be less stable. In contrast, a higher share of non-bank subsidiaries significantly decreases the probability for a state aid request during the recent crisis period. This heterogeneity advises against the use of a single complexity measure when evaluating the implications of bank complexity.
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Foreign Direct Investment: The Role of Institutional and Cultural Determinants
Stefan Eichler, N. Lucke
Applied Economics,
Nr. 11,
2016
Abstract
Using panel data for 29 source and 65 host countries in the period 1995–2009, we examine the determinants of bilateral FDI stocks, focusing on institutional and cultural factors. The results reveal that institutional and cultural distance is important and that FDI has a predominantly regional aspect. FDI to developing countries is positively affected by better institutions in the host country, while foreign investors prefer to invest in developed countries that are more corrupt and politically unstable compared to home. The results indicate that foreign investors prefer to invest in countries with less diverse societies than their own.
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RegDemo: Aufbereitung und Zusammenführung der Akteursdaten - Technische Dokumentation der Routinen und Datensätze
Wilfried Ehrenfeld
IWH Technical Reports,
Nr. 1,
2015
Abstract
Übergeordnetes Ziel der hier vorgestellten Routinen ist die Abbildung von Kooperationsbeziehungen von Unternehmen, Universitäten, außeruniversitären Forschungseinrichtung sowie sonstiger Institutionen auf drei Ebenen von Innovationstätigkeit (Verbundprojekte; Publikationen; Patente). Dazu werden a) die drei innovationsbezogenen Datenbanken (Förderkatalog; Web of Knowledge; DPMA Patente) vereinheitlicht und zusammengeführt sowie b) diese kombinierten Datenbestände mittels Record-Linkage-Techniken mit den Daten aus den Institutionendatensätzen Amadeus und Research Explorer verknüpft. Die Zusammenführung erstreckt sich für dieses Projekt auf die sechs Fallregionen, die in RegDemo vorgesehen sind. Die Abgrenzung erfolgt anhand von Raumordnungsregionen: 501 - Aachen; 513 - Siegen; 602 - Nordhessen (= „Kassel“); 1302 – Mittleres Mecklenburg/Rostock (= „Rostock“); 1401 - Oberes Elbtal/Osterzgebirge (= „Dresden“); 1504 - Magdeburg.
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“The German Saver” and the Low Policy Rate Environment
Reint E. Gropp, Vahid Saadi
IWH Online,
Nr. 9,
2015
Abstract
It is widely claimed that “the German saver” suffers (i.e. generates significantly lower returns on her savings) in the low interest environment that Germany currently experiences relative to a high interest rate environment. With “low interest rate environment”, the observers tend to mean “low policy rates”, i.e. the European Central Bank’s (ECB) main refinancing rate.
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Censored Fractional Response Model: Estimating Heterogeneous Relative Risk Aversion of European Households
Qizhou Xiong
IWH Discussion Papers,
Nr. 11,
2015
Abstract
This paper estimates relative risk aversion using the observed shares of risky assets and characteristics of households from the Household Finance and Consumption Survey of the European Central Bank. Given that the risky share is a fractional response variable belonging to [0, 1], this paper proposes a censored fractional response estimation method using extremal quantiles to approximate the censoring thresholds. Considering that participation in risky asset markets is costly, I estimate both the heterogeneous relative risk aversion and participation cost using a working sample that includes both risky asset holders and non-risky asset holders by treating the zero risky share as the result of heterogeneous self-censoring. Estimation results show lower participation costs and higher relative risk aversion than what was previously estimated. The estimated median relative risk aversions of eight European countries range from 4.6 to 13.6. However, the results are sensitive to households’ perception of the risky asset market return and volatility.
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An Empirical Analysis of Legal Insider Trading in The Netherlands
Frank de Jong, Jérémie Lefebvre, Hans Degryse
De Economist,
Nr. 1,
2014
Abstract
In this paper, we employ a registry of legal insider trading for Dutch listed firms to investigate the information content of trades by corporate insiders. Using a standard event-study methodology, we examine short-term stock price behavior around trades. We find that purchases are followed by economically large abnormal returns. This result is strongest for purchases by top executives and for small market capitalization firms, which is consistent with the hypothesis that legal insider trading is an important channel through which information flows to the market. We analyze also the impact of the implementation of the Market Abuse Directive (European Union Directive 2003/6/EC), which strengthens the existing regulation in the Netherlands. We show that the new regulation reduced the information content of sales by top executives.
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Sovereign Credit Risk, Banks' Government Support, and Bank Stock Returns around the World: Discussion of Correa, Lee, Sapriza, and Suarez
Reint E. Gropp
Journal of Money, Credit and Banking,
s1
2014
Abstract
In the years leading up to the 2008–09 financial crisis, many banks around the world greatly expanded their balance sheets to take advantage of cheap and abundantly available funding. Access to international funding markets, in particular, made it possible for banks to reach a size that in some cases was a large multiple of their home countries’ gross domestic product (GDP). In Iceland, for example, assets of the banking system reached up to 900% of GDP in 2007. Similarly, by the end of 2008, assets in UK and Swiss banks exceeded 500% of their countries’ GDPs, respectively. Banks may also have grown rapidly because they may have wanted to reach too-big-to-fail status in their country, implying even lower funding cost (Penas and Unal 2004).
The depth and severity of the 2008–09 financial crisis and the subsequent debt crisis in Europe, however, have cast doubts on the ability of governments to bail out banks when they experience severe difficulties, in particular, in financially fragile environments and faced with large budget imbalances. This has resulted in as what some observers have dubbed a “doom loop”: the combination of weak public finances and weak banks results in a vicious cycle, in which the funding cost of banks increases, as the ability of governments to bail out banks is called into question, in turn increasing the funding cost of these banks and making the likelihood that the government will actually have to step in even higher, which in turn increases funding cost to the government and so forth.
Against this background, the paper by Correa et al. (2014) explores the link between sovereign rating changes and bank stock returns. They show large negative reactions of stock returns in response to sovereign ratings downgrades for banks that are expected to receive government support in case of failure. They find the strongest effects in developed economies, where the credibility of government bail outs is higher ex ante, while the effects are smaller in developing and emerging economies. In my view, the paper makes a number of important contributions to the extant literature.
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